Frankfurt The financial regulator Bafin is tightening control of the prominent Berlin fintech Solaris. For the institute, “in future there will be a reservation of permission with regard to new partnerships,” said the designated Solaris boss Carsten Höltkemeyer of the Handelsblatt. “So we have to get the green light from the Bafin before we can take on new customers.”
Such a requirement is exceptional in the banking sector. It makes it clear that financial regulators still see many weaknesses in Solaris. Until these deficiencies are remedied, Bafin now has the option of severely restricting the acceptance of new customers.
Solaris was last valued at 1.6 billion euros and is of great importance for the fintech ecosystem in Germany. The institute enables other start-ups to use the Solaris banking license and do business with it. In addition, Solaris offers established companies banking services, such as issuing credit cards.
Existing or already agreed partnerships are not affected by the Bafin condition, said Höltkemeyer. With every new customer, however, Solaris now has to show “that we have analyzed its business model in detail and that the risk framework is appropriate”.
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Höltkemeyer has been a simple board member at Solaris since November and is scheduled to replace long-standing company boss Roland Folz at the end of April. The new boss does not assume that Solaris’ business will be “noticeably restricted” due to the Bafin measure.
After all, the institute has already decided to expand business with large and comparatively creditworthy customers in the future. “Overall, we are confident that we will grow faster than the market in 2023.”
The Bafin is sending a new special representative
Höltkemeyer said he could not predict how long it would take for the financial supervisory authority to review new partners and whether Solaris would always get permission. In principle, however, the requirement fits in with Solaris’ priorities in the first half of 2023. “We want to make our platform as secure and stable as possible so that we can grow stronger again afterwards.”
The Bafin has had its sights set on Solaris for some time. In 2020, she found some serious deficiencies during a special test. According to financial circles, this included combating money laundering and checking customers.
The Bafin then significantly increased the equity capital requirements for Solaris and also sent a special auditor to the bank in January of last year. According to insiders, this was the auditing company PwC, which is now being replaced.
“The Bafin has informed us that we will have a new special representative starting this year,” said Höltkemeyer. It is conceivable that this has a broader mandate than PwC. The Bafin did not want to comment on this topic or on the reservation of permission for new Solaris customers.
We want to demonstrate profitable growth this year and be in the black for the first time for the full year. Solaris CEO Carsten Höltkemeyer
From Höltkemeyer’s point of view, Solaris 2022 has already corrected many deficiencies. The institute will continue to work on the outstanding issues in 2023. Solaris will work closely with the special representative. “The quicker we can close this issue, the better.”
The number of employees will not change much
Addressing regulatory flaws would also help Solaris win new major customers and become profitable. The company aimed to be profitable on a monthly basis by the end of 2022. “We are close to this goal,” said Höltkemeyer.
“2022 wasn’t the best year for our customers, but we have a very robust business model.” “We want to demonstrate profitable growth this year and be in the black for the first time for the full year.”
In 2021, the annual loss before taxes for the Solaris Group was 41.3 million euros. The figures for the past financial year are not yet known.
The new CEO of Berlin Solaris.
(Photo: press photo)
The acquisition of former competitor Contis for 153 million euros is helping Solaris on the way to profitability. The British company already achieved a pre-tax profit of four million euros in 2021 – and it should support the results of the Solaris Group in the future.
“There is a lot of overlap between Solaris and Contis that we want to use,” said Höltkemeyer. “This allows us to shift staff and use them in other growth areas. The bottom line is that the number of 800 employees “will not change much over the course of the year”.
Solaris wants to be more selective with fintech customers
Solaris had already adjusted its strategy in the summer and announced that it would increasingly like to win large and established companies as customers.
“Fintechs remain an important pillar, but we want to be much more selective and concentrate on really innovative fintechs,” explained the designated Solaris boss. This focus has been lacking in the past. “We can’t work with every fintech,” stressed Höltkemeyer. “We also made mistakes there.”
He also justifies the stronger focus on corporate customers with the enormous sales potential in this area. “The European market for financial services for our target segment has a volume of 14 to 16 billion euros.”
Solaris is already working with American Express, for example, and enables installment payments for credit card purchases. Samsung also uses the company’s services to offer “Samsung Pay” in Germany.
In addition, the company was able to win the ADAC as a partner in September 2021. From the fourth quarter of the current year, the Berliners want to take care of around 1.3 million credit cards issued by the automobile club – and use economies of scale in the process.
After taking over the ADAC portfolio, Solaris will take care of more than five million debit and credit cards, said Höltkemeyer. “We have a good technological solution, so we can work more profitably in this area than some banks with older systems.”
New boss wants to lower the capital ratio
Because of the ADAC deal, however, Solaris has to look for new capital in difficult times. After completion of the transaction, the core capital ratio – a ratio that puts equity in relation to the risks – at Solaris would be roughly halved to around 15 percent.
Since this is clearly not enough for the institute’s risky business model, the company is examining several options to keep its core capital ratio stable. At the end of the 2021 financial year, it was 28.1 percent.
“We’re keeping all options open,” said Höltkemeyer. Thanks to the last round of financing in June 2022, in which Solaris collected around 40 million euros from existing investors, the company “does not have to act at short notice”.
According to insiders, Solaris is discussing, among other things, a synthetic securitization in order to stabilize the capital ratio after the ADAC deal. Risks associated with the credit card portfolio would be sold to investors.
According to financial circles, a guarantee structure could also be considered. Another financial institution would assume a guarantee for the credit card portfolio. A larger round of financing would also be conceivable. However, the general conditions for this have deteriorated for all start-ups due to the turnaround in interest rates and the cooling of the economy.
Höltkemeyer wants to further develop Solaris in such a way that the supervisory authorities at the institute are satisfied with thinner security buffers. “One goal is to be able to lower the core capital ratio in the future.” Eliminating regulatory deficiencies would certainly be helpful.
More: Billionaire fintech is feeling the effects of interest rate turnaround – Solaris needs fresh money